# Petition — Association of Massachusetts Consumers, Inc. v. Securities & Exchange Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_1228%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1976 - **Citation:** 423 U.S. 1052 ## Text IN THE Supreme Court of the United States OcToBER TERM, 1975 “ 25-607 ASSOCIATION OF MASSACHUSETTS CONSUMERS, INC., Petitioner, Vv ~ . — — ‘ ' . SECURITIES AND EXCHANGE COMMISSION, Lt, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT WortH ROWLEY JAMES F’. FAIRMAN, JR. Patrick FE’. MARTIN Row.ey & Scott 1730 Rhode Island Avenue, N.W. Washington, D.C. 20036 (202) 293-2170 Counsel for Petitioner Press or Byron S. ADAMS PRINTING, INC., WASHINGTON, D. C. Page ELE DOL OLE DO jdcunaceed »s = OPEC IE EC OEE OL FONE I MA Te OREM 2 CSIR TID in 5 hob kde < cht edeecetcccséses 2 FO ne ee ee mee 3 NS OD os es abd dade eheiba kas 6uaeueaeees 3 REASONS FoR GRANTING THE WRIT ............ceee00. 6 ND oe oak cate Pecan es ona ase 11 APPENDICES: A. Opinions and Orders Below ................ la FOF ERLE PTE REE EP Ee eer 26a C. Resolution of Massachusetts Consumers’ Coun- ee ar ane! ELC: tr eRe ie 4ha D. Federal Power Commission’s Order to Show ER eee eee oe POE” RIES Se Ree EE 43a CITATIONS CasEs: Cascade Natural Gas Corp. v. El Paso Natural Gas Co., BOS TE, Be CRED Koi kcbvdsncivccencesvesesss 6 New England Electric System, 38 S.E.C. 193 (1958).. 3 New England Electric System, et al., 41 S.E.C. 888 RED - . nb64 6440 cnc aunsnendasssdusceeseseeens 3, 4 New England Electric System v. Securities and Ea- change Commission, 346 F.2d 399 (1st Cir. 1965) 4 New England Electric System v. Securities and Ea- change Commission, 376 F.2d 107 (1st Cir. 1967) 4 ii Index Continued Page Securities and Exchange Commission v. New England Electric System, 384 U.S. 176 (1966) ........ 2, 4, 6,7 Securities and Exchange Commission v. New England Electric System, 390 U.S. 207 (1968) ........ 2, 4, 6, 7 United States v. E. I. DuPont DeNemours & Co., 366 Me Se SD I 6 rnd udence dks bcacesscuces 6 STATUTES: Public Utility Holding Company Act of 1935, 15 U.S.C. Ss Oe eeadacenus divdcuues 2, 3, ‘4, 6, 7, 9, 10, 11 aeteee 2, TP WIG. OU vnc ccccccctccucsacs 3, 8 Section 2(a)(11)(A), 15 U.S.C. § 79b(a)(1)(A) 3,8 martion ©, 16 WAG. § TOE oo. ccccccecccvccs 3, 8, 10 Section 10, 15 U.S.C. § 79} ................. 3, 8, 10 Section 11, 16 U.S.C. § 79k .. wo. ccc ccese 3, 4, 8, 10 a IN THE Supreme Court of the United States OcToBER TERM, 1975 No. ASSOCIATION OF MASSACHUSETTS CONSUMERS, INC., Petitioner, v SECURITIES AND EXCHANGE COMMISSION, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT The Association of Massachusetts Consumers, Inc. (‘‘Association’’), petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the District of Columbia Circuit entered in this case on July 24, 1975. OPINIONS BELOW The opinion of the Court of Appeals for the District of Columbia Circuit sought to be reviewed here is re- ported at 516 F.2d 711 (D.C. Cir. 1975), and is re- printed in Appendix A, infra, pp. la-9a. 2 The memorandum opinions and orders of the Secu- rities and Exchange Commission (‘‘SEC’’) issued on October 31, 1973 and January 11, 1974, and affirmed by the court below are reprinted in Appendix A, infra, pp. 10a-25a. JURISDICTION The judgment of the Court of Appeals was entered on July 24, 1975. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1). QUESTIONS PRESENTED . 1. Whether SEC, in carrying out a divestiture twice mandatea by this Court (Securities and Ex- change Commission v. New England Electric System, 384 U.S. 176 (1966); 390 U.S. 207 (1968)) denied consumer interests the protection required by those mandates and by the Public Utility Holding Company Act of 1935, when SEC accepted and approved an out- of-time plan for the sale of securities by a registered holding company to an exempt holding company and did so without investigation and without hearing, al- though consumer interests credibly challenged the law- fulness of the transaction and sought an investigation and hearing. 2. Whether SEC, in administering divestiture re- lief under the Public Utility Holding Company Act of 1935 and the mandate of this Court, impermissibly failed to enforce the policies of the law with respect to holding companies which favor consumer interests and require the application of antitrust principles to util- ity regulation. » ee ed OOP, Notte tk wes —s ate ae eo rees 3 STATUTES INVOLVED The statutory provisions involved are Sections 1, 2, 9, 10, and 11 of the Public Utility Holding Company Act (“Act’’), 15 U.S.C. 79a, 79b, 79i, 79j and 79k. The relevant excerpts are printed in Appendix B, infra, pp. 26a-4la. STATEMENT The Association files this petition with the endorse- ment and support of the Massachusetts Consumers’ Council, an agency of the Commonwealth of Massa- chusetts, in order to maintain and defend consumer interests, which although protected by the Public Utility Holding Company Act of 1935, have otherwise been unrepresented in this case.’ In 1957 SEC instituted proceedings under Section 11 of the Act to determine whether the New England Electric System (‘‘NEES’’), a public utility holding company registered under the Act, was to be per- mitted to retain an aggregate of eight gas and seven electric utility systems which it then controlled. SEC determined that the electric properties constituted a single integrated system (New England Electric Sys- tem, 38 S.E.C. 193 (1958)), which NEES elected to retain, and in 1964 ordered divestiture of the eight gas utility companies held by NEES (New England Electric System, et al., 41 S.E.C, 888 (1964) ).’ 1 Appendix C, infra, pp. 4%a, is a copy of a Resolution adopted by the Massachusetts Consumers’ Council on September 11, 1975, supporting the petitioner’s position herein. 2The eight companies were: Central Massachusetts Gas Com- pany, Lawrence Gas Company, Lynn Gas Company, Mystie Val- ley Gas Company, North Shore Gas Company, Northampton Gas Light Company, Norwood Gas Company and Wachusett Gas Com- pany. SEC acknowledged that these companies constituted a single integrated gas utility system. (41 S.E.C. 888) ee ee 4 Successful appeals by NEES were twice. taken through the Court of Appeals for the First Circuit to this Court and twice this Court reversed the appellate decisions. In its second decision, rendered March 5, 1968, this Court directed that a judgment be entered affirming the Commission’s 1964 order.* That judg- ment was issued on April 3, 1968 by the First Circuit, thus ostensibly terminating a protracted and major disagreement in favor of SEC’s exercise of its respon- sibilities under the Act, and activating those provi- sions of the Act under which the Commission must discharge further responsibilities to accomplish, ‘‘as soon as practicable,’’* the divestiture program it had initiated in the public interest in 1957. Thereafter proceedings in this cause slowed to the stateliness and imperceptibility of geologic time. The **as soon as practicable”’ scheduling of divestiture was abandoned by SEC, and the April 1970 deadline im- posed by Section 11(c) of the Act was ignored. NEES’s first divestiture plan was not filed until Sep- tember 1, 1971, and was limited in scope, relating to only four small companies.’ Not until March 1973 did * The various opinions and orders comprising this saga are listed for convenience: New England Electric System, 41 S.E.C. 888 (1964), affirmed initially, SEC v. New England Electric System, 384 U.S. 176 (1966), reversing 346 F.2d 399 (1st Cir. 1965); affirmed on second appeal, SEC v. New Englend Electric System, 390 U.S. 207 (1968), reversing, 376 F.2d 107 (1st Cir. 1967). See a me Company Act Release (HCAR) No. 16618, February 415 U.S.C. $$ 79a, 79k. * Central Massachusetts Gas Company, Norwood Gas Company, Wachusett Gas Company and Northampton Gas Company. HCAR No. 17066, March 25, 1971. Northampton was subsequently ac- quired by Springfield Gas Light Company as part of the first phase of the divestiture plan adopted by NEES. 5 SEC notice NEES’s proposed divestiture of its Law- rence Gas Company stock to Springfield Gas Light Company, an exempt holding company controlled by the Tenney Group ° and subsequently merged inte Bay State Company, another exempt holding company under the same control. By petition filed April 9, 1973, the Association re- quested a hearing on the Lawrence matter and its con- solidation with a companion proceeding in which NEES sought approval of its plan for the sale of stock of three other of its subsidiary gas companies to Eastern Gas and Fuel Associates (‘‘Eastern’’) and in which the Association was granted participation.’ After a lengthy hearing the Eastern proceeding was settled. With respect to the Lawrence proceeding, SEC took no action on the Association’s request for a hearing and consolidation until, in its Memorandum Opinion issued on October 31, 1973 (Appendix B, infra, pp. 10a-14a), it summarily denied the Associa- tion’s request and approved the sale of the Lawrence stock to Springfield. Thereafter, on January 11, 1974, SEC reaffirmed that decision in response to the Asso- ciation’s application for a rehearing (Appendix B, The Tenney Group is a de facto holding company or organi- zation, unregistered and unregulated, which has brought under common control various gas and electric utility properties operat- ing in Massachusetts, New Hampshire, Pennsylvania, New Jersey and New York, as follows: Brockton-Taunton Gas Company; Coneord Electric Company; Exeter and Hampton Electric Com- pany; Fitchburg Gas and Electric Light Company; Orange and Rockland Utilities, Inc. (See FPC September 15, 1975 Order to Show Cause, reprinted in Appendix D, infra, pp. 43a-49a.) ™The two plans constituting the last phase of the NEES di- vestiture were concurrently before the Commission, i.e., Adminis- trative Proceeding File No. 3-4053, the Lawrence proceeding; and Administrative Proceeding File No. 3-4052. the Eastern proceeding. 6 infra, at pp. 15a-25a). By an opinion filed July 24, 1974, appeals for the District of Columbia Circuit sus- tained SEC’s action (Appendix B, infra, at pp. 1a- 9a). REASONS FOR CRANTING THE WRIT 1. The Court Should Compel Full Obedience to Its Mandates in This Case. Certiorari will invoke the supervisory power of this Court to enforce and make meaningful the divestiture it has twice approved in SEC v. NEES and which is required by the Public Utility Holding Company Act of 1935. This Court has both the authority and the dis- position to require its mandates to be fully carried out. See Cascade Natural Gas Corp. v. El Paso Natural Gas Co., 386 U.S. 129 (1967) ; United States v. EJ. DuPont DeNemours & Co, 366 U.S. 316, 325 (1961). By permitting Lawrence Gas Company to be be- latedly transferred from NEES to the Tenney Group under the aegis of this Court’s opinions and the Act without any hearing or investigation, and over the protests of the Association, SEC has seriously miscon- strued this Court’s mandate, and has failed to fulfill its own enforcement role in the administration of re- lief. This Court could hardly have had in mind, when it supported SEC’s position in the litigation back in 1968 and earlier, that SEC would falter and slacken in its enforcement efforts, and would fail to apply the standards of the Act in carrying out the divestiture it was seeking. But that is precisely what SEC has done, with the result that the entire exercise has been ren- dered futile in that it has not resulted in significant relief. In terms of consumer benefit and public in- terest, nothing has been accomplished beyond the term- ination of common proprietorship over gas and electric OA et AORN NS Oe eh " 7 distribution properties in Lawrence’s service area. State Utility Commission control over such service makes this a marginal benefit. And transfer of con- trol over Lawrence Gas Company from a regulated holding company with electric utility interests to an unregulated holding company with electric utility in- terests is not simply meaningless; it is counterpro- ductive. Although it is prima facie suspect, this transfer has remained untested by adversary proceedings. Such proceedings, with the participation of the Association, could have explored alternative divestiture proposals, such as spin-off or sale to independent investors. Ad- ministrative consideration of such proposals would seem better to serve public interests and consumer rights by promising, not a diluted, ambiguous and absentee operation serving the needs of a multi-state multi-utility holding group, but instead a manage- ment wholly concerned with the interest of Lawrence Gas Company and the municipality and customers upon which it should depend. In the light of such pro- ceedings the significance of the Tenney Group’s acqui- sition of the Lawrence property could have been ex- plored and a factual basis established for predicting its impact upon the consumer interests which the Act and this Court have sought to protect. Indeed, the proceedings might have shown that an independent Lawrence Gas Company would have provided yardstick competition for the giant utilities which today domi- nate gas distribution in Massachusetts. SEC’s performance in the Lawrence proceeding has been truly amazing. It usurped the function of this Court by varying from the mandates of SEC v. NEES. ee 8 It abdicated its own function in two respects. First, it ignored its statutory duty to protect consumer in- terests, refusing meaningful intervention to consumers represented by the Association (the only consumer entity which sought intervention), and failing to con- duct an investigation and hearing so that the public interest factors in the divestiture could be evaluated and protected in the light of a developed record. See- ond, SEC departed from the legal norms established by the Act and endorsed by this Court to test the NEES divestiture and the Tenney Group acquisition, namely the antitrust and consumer public interest standards embodied in Sections 1, 9, 10 and 11 of the Act. To illustrate the lawlessness of SEC’s treatment, consider the affiliate question. Springfield had acquired Northampton Gas Light Company through a previous divestiture sale by NEES. Thereby Springfield became an “‘affiliate’’ of Lawrence as de- fined by Section 2(a)(11)(A) of the Act. An affiliate relationship triggers SEC investigations and requires SEC approval of the proposed acquisition pursuant to Sections 9 and 10 of the Act. SEC ignored these requirements of law, and did not deal substantively with the matter by investigation, hearing and formal approval. Instead it claimed that the ‘“‘substance”’ of the transaction took it out of the Act. And this des- pite the fact that Congress expressly provided in See- tion 10 for SEC investigation and approval of a pro- posed acquisition offered, as was this one, to comply with a Section 11(b) divestiture order. If SEC had done its duty it would have found that the divestiture of gas utility companies from the economically power- ful control of NEES into the concentrated control of the Tenney Group was inconsistent with the provisions i im 9 of 10(b) of the Act proscribing acquisitions which tend toward interlocking relations of a kind or to an extent detrimental to the public interest or the interest of investors.* 2. This is an Important Test Case Which Will Determine the Direction and Efficacy of SEC Enforcement of the Public Utility Holding Company Act With Respect to Combina- tion Electric/Gas Utilities. Back in 1957 when SEC began this entire proceed- ing, it was recognized as the demonstration or trial run of SEC’s powers under the Act to deal with the anti- competitive problems posed by combination electric/ gas utilities. Today there are seventy-six such util- ities, each with annual operating revenues in excess of $1 million.*® To the extent that these utilities are vul- nerable under the standards of the Act because of holding company involvement,” the outcome of this ease will determine whether SEC will proceed against them, and if it does, whether consumer interests will be granted effective participation to carry out che pur- poses of the Act. If the public benefits flowing from the enforcement of the Act are as miniscule as the present status of this test case indicates, the case will have demonstrated that as a practical matter enforcement of the Act is a game to be played or forfeited at the uncontrolled 8 See Appendix D infra. ®FPC Document 8-247: Statistics of Privately Owned Electric Utilities in the United States. 10 Under the Act SEC has jurisdiction over seventy-eight electric and/or gas utility subsidiaries in twenty active holding companies controlling $33 billion in assets. See SEC 1974 Annual Report, Tables 27 and 28, pp. 176, 177. a 10 option of SEC, and a game to be won by utility interests willing to play on and on forever. Such a conclusion flies in the face of the Act itself, flouts the earlier de- cisions of this Court in this case, and rewards unre- generate and protracted resistance to the enforcement powers with ultimate victory. Moreover, unless certiorari is granted, and effective and meaningful relief achieved in this test case, its sec- ond teaching will be made clear: that responsible consumer interests can claim no significant participa- tion in the enforcement of the Act. The Court should be aware that this is the only test case to survive out of the entire NEES proceedings. The first four divesti- tures in this litigation were small and insignificant, and SEC’s approval of them went unchallenged. The next three—the Eastern proceedings, wherein the As- sociation actively participated—resulted, after extend- ed investigative hearings, in a settlement of the con- sumer issues which was secured in part by the Associa- tion. Under that settlement the affected municipalities were given options to acquire the divested systems for municipal operation. The last remaining divestiture is the present case, wherein the Association has been denied a hearing and effective participation, and the outcome of this case, if unreversed, is a travesty which will certainly not stimulate any further efforts by SEC to enforce the Act and will with equal certainty discourage consumer organizations from involving themselves with it. On the other hand, if the Lawrence Gas Company were to be divested in full compliance with all of the provi- sions of the Act, including the standards of Sections 9, 10 and 11, with due attention given to the interests of 11 consumers as well as investors, it would serve as a model after which future SEC compliance programs can be patterned. Either way, the lesson of this case will not be lost on the combination electric/gas utilities which are vul- nerable under the Act. CONCLUSION The Court below, by sustaining SEC’s position in the Lawrence proceeding, adopted as its own the grave legal error committed by SEC as hereinbefore shown. Accordingly the writ prayed for should issue. Respectfully submitted, Association of Massachusetts Consumers By: Row.ey & Scorr Worth RowLeEY JAMES F. FAarRMAN, JR. Patrick F’, MARTIN APPENDIX la APPENDIX A UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT AssocIaTION oF MassacHusetTts ConsuMERS, INCORPORATED, Petitioner, Vv. Unirtep States SeEcuriITIEs AND ExcHANGE CoMMISSION, Respondent, New England Electric System Bay State Gas Company, Intervenors. No. 74-1325. United States Court of Appeals, District of Columbia Circuit. Argued Feb. 27, 1975. Decided July 24, 1975. Rives, Senior Circuit Judge: Without a hearing, the Securities and Exchange Com- mission (Hereafter referred to as ‘‘Commission’’) ap- proved the final step in compliance with its order requiring the New England Electric System (‘‘ NEES’’)—a statutory holding company under the Publie Utilities Holding Com- pany Act of 1935 (15 U.S.C. § 79) (hereinafter the Act)— to divest itself of all ownership in gas utility companies. The Association of Massachusetts Consumers, Ince. (‘‘AMC’’), an intervenor in the proceedings before the Commission, challenges the actions of the Commission. We find that th. Commission did not abuse its discretion and affirm its disposition of this case. The controversy culminating in the present proceeding began over 18 years ago. In 1957, NEES held stock in a number of electric and gas utility companies serving New England. In that year, the Commission began proceedings, 2a under section 11 of the Act (15 U.S.C. § 79k), against — uB. The following year the Commission “declared N] ES’ electric utility holdings to be an integrated system (See $2 of the Act, 15 U.S.C. §79b). Six years later the Commission ordered NEES to divest itself of the gas atilit stock.’ In 1968, after protracted litigation, the Su word Court and the First Circuit affirmed the order.’ In a ber, 1971, with approval of the Commission, NEES sold its Stock in four of the gas utilities.* The following ear NEES sought Commission approval of a plan to sell A the Boston Gas Company, an operating subsidiary of the East- ern Gas System, the assets of three utilities (plus another company related to those utilities), whose corporate shell would therafter be dissolved. In a separate contain: NEES also proposed to sell to Springfield Gas Light Com. pany its Lawrence Gas Company stock. The plan requir d minority shareholders, whose holdings totaled 10% of th stock, to sell their stock to Springfield at the same bes received by NEES. Springfield would then merge into it subsidiary, the Northampton Gas Light Company The ‘NEES transferred its stock to idi ~ S$ stoc a subsidiary, the M h Gas System. The latter hel lary, the Massachusetts be canal er held the stock until the divestment could *See New England Electric System, 4 a initially, SEC v. New England ascot pol he oe 176, 86 S.Ct, 1397, 16 LLEd2d 456 (1966), reversing 346 F.2d 399 (1st Cir. 1965), affirmed on second appeal, SEC v ‘New Er pore Electric System, 390 U.S. 207, 88 S.Ct. 916 19 L.Ed 2d 1042 (1968), reversing, 376 F.2d 107 (1st Cir, 1967). See also Hold: : Company Act Release No. 16618, Feb. 24, 1970 (App 107-108). . : 7 ; 1 “o., No Gas Co. and Northampton Gas Co. rwood Gas Co., Wachusett * Although the two proposed sales were to be made i purchasers, bids were solicited by copies of the same eon ee oo no difference in the bidding procedure in the two cases Th sales became separate proceedings after NEES had det sdeah the highest bidders. ee 3a surviving company would change its name to Bay State Gas Company, and would hold all of the Lawrence stock. Two petitions to intervene in the proceedings were filed by AMC—(1) in the Eastern proceedings to ratify the sale of the assets of the three utilities to Boston Gas, and (2) in the Bay State proceedings to ratify the sale of the Lawrence stock to Bay State. AMC moved that the Com- mission consolidate the proceedings and conduct a hearing. The Commission did not act upon AMC’s motion, but it did allow AMC limited participation in the Eastern proceed- ings. Following the hearings in those proceedings, a set- tlement among the parties was reached, and the Commis- sion approved the sale to Boston Gas. At about the same time, the Massachusetts Public Utility Commission held a public hearing on the proposed sale of the Lawrence stock to Springfield and the merger of Springfield into North- ampton to form Bay State. The record of those hearings reveals no participation by AMC. The Massachusetts Com- mission approved the plan. On October 31, 1973, the Com- mission issued a memorandum opinion approving the sale of the Lawrence stock to Springfield and denying AMC’s motion. The Commission denied AMC’s request for re- consideration. AMC appeals to this Court, pursuant to § 24(a) of the Act (15 U.S.C. § 79x(a)). The question before this Court is whether the Commis- sion abused its discretion in refusing to consolidate these proceedings with the Eastern proceedings and in denying a hearing on the original motion or on the motion for reconsideration. [1-3] The law is clear concerning judicial review of an administrative body’s refusal to consolidate two proceed- | ings. ‘“No principle of administrative law is more firmly established than that of agency control of its own calendar. Practical problems of calendar administra- tion confront an agency whenever related applications ta are pending at the same time. Consolidation * * * and similar questions are housekeeping details addressed to the discretion of the agency and, due process or stat- utory considerations aside, are no concern of the courts.’’ City of San Antonio v. C. A. B., 126 U.S.App.D.C. 112, 374 F.2d 326, 329 (1967) (footnotes omitted). Consolidation would have needlessly delayed resolution of the Eastern proceedings. The failure to consolidate prejudiced none of AMC’s rights in either proceeding. The Commission’s refusal to consolidate the proceedings was a sound exercise of necessary discretion. [4] On appeal, AMC submits that, contrary to the Com- mission’s determination, three issues required a hearing: (1) the possible anti-competitive effects of the sale of Lawrence to a member of the ‘‘Tenney”’ group; (2) the possible application of sections 9(a)(2) and 10 [15 U.S.C. § 79i(a)(2) and § 79j] to the sale of Law- rence to Springfield; (3) the possible violation of the statute by NEES’s submission of a voluntary plan for divestiture more than wvo years after the divestiture order became ef- fective. AMC must show more than that these were issues which the Commission could have considered. In addition, AMC must show that it presented them in compliance with the Commission’s procedural rules. Rule 9 of the Commis- sion’s Rules of Practice, 17 CFR 201.9, requires that an intervenor state specifically the issues whose resolution re- quires a hearing. The published notice in the instant case called AMC’s attention to that requirement. By timely motion, NEES complained that AMC was not in compliance with Rule 9. _— oer’ 5a AMC’s compliance with the published notice was incom- plete. It ignored NEES’s motion, even though AMC’s mo- tion to intervene was vague as to the issues to be raised at any hearing. It did mention NEES’s long delay in dispos- ing of its gas utility stock and expressed suspicion about the fairness of the procedure by which NEES sought bids for the stock. In a letter, copy of which was appended to the motion, the president of AMC stated that the instant application raised ‘‘many of the same objections * * * raised against the proposed sale [in the Eastern proceed- ings]’’ (Emphasis supplied) (App. 156). Those three statements gave the only definition of the issues which AMC desired to explore in a hearing. AMC did not state that the Commission ignored any anti-competitive effects from the sale to Springfield,’ nor did it argue that section 9(a)(2) governed this sale. It was only after the sale had been approved and on a petition for rehearing that AMC introduced those two issues. The requirement that the intervenors specify the issues which demand a hearing serves important purposes. It en- ables the Commission to screen out frivolous requests for hearings and efficiently conduct hearings. Here, where the subject matter is so complex, poorly framed issues could turn the hearings into a maze in which justice could be lost. The strict application of those procedural rules seems appropriate here, where the intervenors were clearly on notice that they must comply with Rule 9. Nevertheless, since the intervenors argued that they represent important 5 It is true that in the Eastern proceedings AMC objected to the purchaser and stated that the Bay State sale was subject to “‘many of the same objections.’’ Since any potential anticompetitive ef- fects from the sale to the particular buyer stemmed from facts peculiar to each case, the Commission could not have surmised that, though the circumstances of the buyer in each case were entirely different, AMC wanted to transfer this particular objection from the Eastern proceedings to the Bay State proceedings. The reasonable interpretation was to the contrary. 6a public interests, out of an abundance of caution we construe their pleadings so as to protect those interests and consider all issues referred to in their original petition. We follow the same course in reviewing the issues mentioned in AMC’s petition for reconsideration. [5,6] After showing that reference was made to an issue in its original petition for a hearing, AMC must show that the resolution of the issue required a hearing and that the denial by the Commission was an abuse of discretion. AMC bears an even heavier burden as to the issues first raised in its petition for reconsideration. Only a clear abuse of dis- cretion warrants reversal for failure to grant a request for a rehearing. See United States v. Pierce Auto Lines, 327 U.S. 515, 66 S.Ct. 687, 90 L.Ed. 821 (1946); United States v. 1. C. C., 396 U.S, 491, 90 S.Ct. 708, 24 L.Ed.2d 700 (1970). At the very least, the latter standard requires AMC to show that a potential issue was present and the hearing would have helped resolve it. [7] An issue mentioned in the original petition was whether the Commission erred in allowing NEES to submit a voluntary plan for divestiture five years after the divesti- ture order became effective. AMC submits that, under sec- tion 11(e) [15 U.S.C. § 79k(e)], a holding company has no more than two years in which to comply with a divestiture order. AMC asks that the Commission’s approval of the sale be vacated and that the Commission be directed to pro- ceed pursuant to section 11(d) [15 U.S.C. §79k(d)]. Phillips v. Securities and Exchange Commission, 87 U.S.App.D.C. 380, 185 F.2d 746, 750 (1950) speaks to this question. **Sections 11(c) and 11(d) were designed to enable the Commission to deal with a recalcitrant company. But Congress could hardly have intended that an order entered by the Commission should become a trap closing down relentlessly at the end of a two-year period, against the judgment of the Commission, con- 7a trary to the provisions of the order entered, and to the damage of the very interests which Congress was en- deavoring to protect—the public interest and that of investors. To give any such interpretation to the stat- ute might well tend to cause the Commission to refrain from issuing any order in a particular case until the situation became ripe for complete and immediate en- forcement.’’ Although NEES was slow in complying, within the two years it did make some progress by creating a subsidiary, the Massachusetts Gas System, to hold the gas utility stock. That progress and the Commission’s satisfaction with the final plan are enough to satisfy the requirements of the Act. [8-10] Another issue mentioned in the original petition was whether NEES maintained competitive conditions in soliciting bids for the stock. On appeal, AMC challenges the propriety of transferring the Commission’s findings on that issue from the Eastern proceedings to the present one. We think that use proper. Since NEES solicited bids for all the utilities as a part of the same transaction, the cir- cumstances of soliciting both bids were identical. Fur- thermore, AMC was not denied an opportunity to shape the record, for it participated in the hearing in the Kastern proceedings. The only complaint that AMC can make is that it would have tried harder in the Eastern hearing if it had known that that would be the only hearing. The Com- mission need not hold a hearing to gain information which has already been gathered. An administrative body may ‘‘mold its procedures to the exigencies of the particular ease,’’ Gulf States Utilities Co. v. Federal Power Commis- sion, 411 U.S. 747, 762, 93 S.Ct. 1870, 1880, 36 L.Ed.2d 635 (1973). Moreover, ‘‘[T]he mere fact that the determining body has looked beyond the record proper does not invali- date its action unless substantial prejudice is shown to result.’? United States v. Pierce Auto Freight Lines, Inc., 8a 327 U.S. 515, 530, 66 S.Ct. 687, 695, 90 L.Ed. 821 (1946). AMC fails to show why the findings in the Eastern pro- ceedings were wrong, or that the use of those findings was prejudicial. The findings were supported by substantial evidence and, clearly, there was no abuse of discretion. [11] An issue which AMC raised for the first time in its petition for reconsideration was whether the sale would have anticompetitive effects. AMC contends that Spring- field, the purchaser, belongs to an interstate group of gas and electric utilities known as the ‘‘Tenney’’ group. Those utilities have the same chief executive officer—a Mr. Tenney—and have in common several Board of Director members and officers. The Tenney family owns between ) and 15% of the stock in each company. Although AMC concedes that the ‘‘Tenney”’’ group does not fit within the statutory definition of a holding company, it argues that the Public Utilities Holding Company Act requires the Com- mission to ensure that any divestment will promote the objectives of the Act. In short, AMC asks this Court to hold that, even though the Commission could not order the ‘“*Tenney’’ group to sell the Lawrence stock—if any were owned, it must forbid the group to buy any of the Lawrence stock. We find it unnecessary to resolve that issue. To prevail at a hearing on the matter, AMC would have to show that, although the ‘‘Tenney’’ group was not a statu- tory holding company,’ it was a source of the same abuses and vices which led the Congress to enact the Public Utili- ties Holding Company Act. See §1, 15 U.S.C. § 79a. Elimination of common officers and directors in noncom- peting utility companies was not the precise purpose of the Act. AMC makes no allegation that the ‘‘Tenney”’ group is the source of any evils set forth in section 1 of the Act (15 U.S.C. § 79a). AMC having failed to show that there would have been substantial issues raised at the hearing—— ® See the definition of holding company in section 2 of th 15 U.S.C. § 79b. a 9a even if its interpretation of the Act were correct (a ques- tion we do not reach), we find that the Commission did not abuse its discretion in refusing to vacate its approval of the sale. [12,13] The remaining issue raised in the petition for reconsideration was whether this transa< tion fell within the ambit of section 9(a)(2) of the Act [15 U.S.C. § 79i(a) (2) ] and, hence, required Commission approval (see $10 of the Act, 15 U.S.C. §79j). Since Springfield merged into Northampton after it had bought the Lawrence stock, for an instant there were three entities—Northampton, Law- rence and Springfield. Thus, AMC argues that Springfield, which was already an affiliate of Northampton, was buying the stock of a utility company. Section 9(a)(2) forbids such a purchase without Commission approval. The Com- mission concluded that the merger of Springfield into Nor- thampton was so closely related to the sale that the transac- tion should be viewed as one in which Northampton, a com- pany without an affiliate, obtained the Lawrence stock. We find the Commission’s reasoning persuasive. In assessing interrelated corporate adjustments, comparison should be made of the situation just prior to and immediately follow- ing the adjustments. The sequence of relatively simul- taneous corporate adjustments whose order has no prac- tical effect do not govern the applicability of section 9(a)(2). The same result would not obtain wuere the se- quence of corporate adjustments had a harmful effect on investors or the public. Finding no reversible error, we affirm the judgment of the Commission. Affirmed. 10a Pusuic Utiurry Hotprne Company Act or 1935 Release No. 18149/October 31, 1973 Admin. Proe. File No. 3-4053 In the Matter of New Encuanp Etectric System Massacuvusetts Gas System Westborough, Massachusetts (54-248) (70-5275) MemoranpDuM Oprnton Approvine Section 11(e) Puan This proceeding relates to a plan of New England Elec- tric System (‘‘NEES’’), a registered holding company, and its subsidiary holding company, Massachusetts Gas System (‘‘Mass Gas’’), filed pursuant to Section ll(e) of the Public Utility Holding Company Act of 1935 (‘‘Act’’) and other applicable provisions and rules thereunder, in- cluding Section 12(d) and Rule 44. The plan proposes that NEES sell its capital stock interest in the Lawrence Gas Company (‘‘Lawrence’’), a subsidiary company, to Spring- field Gas Light Company (‘‘Springfield’’), an exempt hold- ing company under the Act pursuant to Rule 2 thereunder. It also provides for the liquidation of Mass Gas and the elimination of the minority shareholder interest in Law- rence. A notice of the filing was issued,” and the Association of Massachusetts Consumers (‘‘AMC’’), a non-profit organi- zation, requested that a hearing be held. It also requested that we consolidate this hearing with the hearing which we ordered at the request of AMC and others on the Section ‘See, New England Electric System, 41 S.E.C. 888 (1964), af- firmed SEC v. New England Electric System, 390 U.S. 207 (1968). * Holding Company Act Release No. 17906 (March 14, 1973). lla 11(e) plan of NEES proposing to sell its stock interests in its other gas subsidiaries.* Subsequently, the contro- versy as to the latter plan was settled, and AMC and the other parties to the settlement have withdrawn from the proceeding.* AMC gave no reasons to support its request for hearing, as directed by our notice. The record is suffi- cient to render a decision in this proceeding without a hearing. The request for such hearing is hereby denied. Under the plan, Mass Gas, which is to be liquidated, will transfer to NEES its holdings of 90.42% of the capital stock of Lawrence. NEES will then sell the Lawrence stock to Springfield, a Massachusetts Gas utility,® for 46,638,000 in cash. Concurrently with the Lawrence ac- quisition Springfield will be merged into Bay State Gas Company (‘‘Bay State’’), presently a Springfield subsidi- ary company, and Lawrence will be retained by Bay State as a subsidiary company.’ Bay State proposes to claim an exemption as a holding company under Rule 2 of the Act. The minority shareholders of Lawrence will be paid the same price per share as that paid to NEES. Lawrence is a gas utility company which supplies gas service to over 30,000 customers in four communities in northeast Massachusetts, with an estimated population of 140,700. In 1972 Lawrence had a net operating income of $977,858, net income of $462,865, and net utility plant of $14,767,993. Gas sales by Lawrence totaled 4,353,298 Mef for that year. Lawrence has outstanding 188,000 shares of common stock, of which 170,002, is owned indirectly by 8 Holding Company Act Release No. 17908 (March 16, 1973). 4 Holding Company Act Release No. 18133 (October 25, 1973). 5 The acquisition of the Lawrence stock was approved by the Massachusetts Department of Public Utilities in D.P.U. 17726, dated October 10, 1973. 6 As a result of the concurrent merger, Lawrence will be Bay State’s sole statutory affiliate. The proposed acquisition is there- fore not subject to Sections 9(a) (2) or 10 of the Act. 12a NEES through Mass Gas. The balance of 17,998 is pub- licly held. Lawrence’s pipeline natural gas is supplied by Tennessee Gas Pipeline Company, which also supplied Springfield. We find, as required by Section 11(e), that the plan is necessary to comply with Section 11(b). Our order there- under directed NEES to divest its interests in its gas util- ity companies, including Lawrence, and the sale of Law- rence does that. The retirement of the minority shares of Lawrence, as we have held in other cases,’ is required un- der Section 11(b) (2). We also find under Section 11(e) that the plan is ‘‘fair and equitable’’ to NEES and the minority shareholders of Lawrence. The highest bid received by NEES was the one from Springfield, in the amount of $6,638,000, plus or minus a dollar for dollar adjustment by the amount of any in- crease or decrease in the underlying book value of the shares between December 31, 1971, of the Lawrence shares to be sold by NEES.* The minority shareholders will re- ceive the same premium as NEES. This premium over book value compares very favorably when tested against the sales of securities of similar companies. The per share price to be paid is 14.82 and 13.96 times Lawrence’s earnings for the years 1972 and 1971, respectively. The sale of the Lawrence stock is also subject to Section 12(d) of the Act and Rule 44 promulgated thereunder, in- cluding the requirement that competitive conditions shall be maintained with respect to the sale. NEES solicited ex- T Northeast Utilities, Holding Company Act Release No. 15448 (April 13, 1966) ; Lynn Electric Company, 40 S.E.C. 828, 833 fn. 9 (1961); New Orleans Public Service, 40 S.E.C. 887 (1961). 8 The adjusted contract price would represent 183% of the underlying book value of the shares at December 31, 1972. ® By order, dated November 23, 1971, we granted NEES an ex- emption from the competitive bidding requirements of Rule 50. Holding Company Act Release No. 17371. 13a pressions of interest, either for the separate purchase of Lawrence or together with its other remaining gas proper- ties, by individual letters and by newspaper advertise- ments. NEES conducted exploratory discussions with those who expressed an interest in Lawrence, and at vari- ous times sent additional information to them. Through- out the prebidding period NEES provided the same basic information to all who continued to have a serious inter- est in the acquisition of Lawrence. NEES received sealed bids for Lawrence at the same time and it reviewed them at the same time. These procedures afforded a fair oppor- tunity for all persons seriously interested to make offers and for NEES to secure the maximum price reasonably ob- tainable. We conclude that NEES maintained competi- tive conditions in offering to sell Lawrence and in choos- ing Springfield as the successful bidder. The liquidation of Mass Gas and the transfer of its as- sets and liabilities to NEES will be recorded at the values carried on the books of Mass Gas. NEES proposes to record the sale of the common stock of Lawrence by (1) a debit to its cash account in the amount of the sales price; (2) a credit to its investment account in the amount of the book value of the shares sold and (3) a credit to dividend income in an amount equal to the undistributed income having accrued from the time the NEES system first ac- quired the Lawrence shares. An amount equal to cash in excess of the above credits will be credited to the earned surplus account representing the gain to NEES from the sale. Among other things, the order by the Massachusetts Department of Public Utilities approving the acquisition by Springfield requires it to segregate the excess of acqui- sition price over the book valne of the Lawrence assets and to amortize that amount over the life of the associated property. NEES and Mass Gas have requested that our order en- tered herein recite that each of the transactions, exchanges, l4a sales and investments proposed in the plan are necessary or appropriate to effectuate the provisions of Section 11(b)(1) of the Act, in accordance with the requirements of Sections 1081 through 1083 of the Internal Revenue Code of 1954, as amended. This request will be granted. No fees or commissions will be paid by NEES or Mass Gas in connection with the sale. Certain services, incident to the transactions, have been or will be performed by New England Power Service Company, the system service com- pany, at cost. A post-effective amendment will be filed setting forth these costs. We conclude that the proposed transactions satisfy the provisions of the Act and the rules thereunder. An ap- propriate order will issue. By the Commission. (Chairman Garrett, Commissioners Loomis, Evans and Sommer. Commissioner Owens not participating.) Georce A. Firzstmmons Secretary lda Release No. 18149/October 31, 1973 In the Matter of New Encuanp Evectric System MassacHuvusetts Gas System Westborough, Massachusetts (54-248, 70-5275) Orper APPROVING Puan Fitep Unpber Section 11(e) The Commission having issued its Findings and Opinion and Order dated March 19, 1964 (Holding Company Act Release No. 15035, 41 SEC 888), pursuant to Section 11(b) (1) of the Public Utility Holding Company Act of 1935 (‘‘Act’’) requiring divestment by New England Electric System (‘‘NEES’’) of all its interests, direct or indirect, in its gas-utility subsidiary companies, and having ordered therein under Section 11(b)(1) that NEES dispose of its interests in its gas properties: NEES and Massachusetts Gas System (‘‘Mass Gas’’) having filed a plan, as amended, pursuant to Section 11(e) of the Act, to effectuate compliance with the Section 11(b) (1) order by the proposed divestiture of Lawrence Gas Company (‘‘Lawrence’’); to retire the minority stock interest in Lawrence and to carry out the other proposals therein specified. The Commission having considered the record and having this day issued its Memorandum Opinion, concluding there- in that the plan, as amended, is necessary to effectuate the provisions of Section 11(b)(1) of the Act and is fair and equitable to the persons affected thereby; and that NEES ma.:tained competitive conditions in the bidding and pro- posed sale of Lawrence to Springfield, as required under Section 12(d) of the Act; NEES and Mass Gas having requested the Commission recite in its Order that the transactions proposed are nec- l6a essary or appropriate to the integration of the NEES holding company system in accordance with the provisions of Section 11(b) of the Act and with the requirements of Section 1081 through 1083 of the Internal Revenue Code of 1954, as amended: Ir Is Orpverep that the request for hearing of the Asso- ciation of Massachusetts Consumers is hereby denied; and Ir Is FurtHeR Orperep, pursuant to Section 11(e) and other provisions of the Act and Rules thereunder, that said plan, as amended be, and it hereby is, approved, effec- tive forthwith; and Ir Is Hereny DeterMINneD AND Orperep that each of the transfers, sales, exchanges, expenditures and investments described in subparagraphs I and II below is necessary or appropriate to the integration or simplification of the holding-company system of which New England Electric System is a member, and to the effectuation of the provis- ions of Section 11(b) of the Act, and that each such trans- action is hereby authorized, approved and directed; that the sale and transfer described in subparagraph I below is ordered to be consummated within 120 days from the date of this Order; and that the expenditures or invest- ments described in subparagraph II below are ordered to be made within 24 months of such sale and transfer. The transactions to which this Order relates, the stocks which are to be transferred, sold and exchanged, and the expendi- tures or investments which are to be made, are specified and itemized as follows: I. New England Electric System shall sell and transfer to Springfield Gas Light Company 170,002 shares of capital stock of par value of $10 per share of Law- rence Gas Company in exchange for cash in the amount of $6,608,000, plus or minus the net increase or decrease in the book value thereof between De- cember 31, 1971, and the end of the calendar month next preceding such sale and transfer. 17a IT. An amount equal to the amount of cash received by New England Electric System upon the sale and transfer of such shares of capital stock of Lawrence Gas Company, as hereinabove ordered, shall be ex- pended or invested by New England Electric Sys- tem in one or more of the following manners: for stock of, or as a contribution to the capital or as paid-in surplus of, one or more corporations which are at the time of such expenditure or investment electric utility subsidiaries of New England Electric System, including but not limited to the following: Massachusetts Electric Company, The Narragansett Electric Company, Granite State Electric Company and New England Power Company or in repayment of short-term notes issued by New England Electric System evidencing indebtedness originally incurred by New England Electric Sys- tem on November 15, 1972, in the principal amount of $30 million, which amount was invested in com- mon stock of said New England Power Company. Ir Is Furtuer Ornverep that jurisdiction be, and it hereby is, reserved to take such action or enter such further orders as may be appr priate to carry out the provisions of Section 11(b) and the plan approved herein, including, insofar as may be necesary, judicial enforcement of the provisions in the plan for the elimination of the minority interest in Lawrence. By the Commission. (Chairman Garrett, Commissioners Loomis, Evans and Sommer. Commissioner Owens not par- ticipating.) Georce A. FirzsmmMons Secretary 18a Unrtrep States or AMERICA before the SEcURITIES AND Excuance ComMISSION Public Utility Holding Company Act of 1935 Rel. No. 18254/January 11, 1974 Admin. Proc. File No. 3-4053 In the Matter of New Encuanp Execrric System MassacHusetts Gas System Westborough, Massachusetts (54-248) (70-5275) SUPPLEMENTAL Memoranpum Opinion Anp Orper GrRant- inc Leave To Fite Petition Out Or Toxwe Anp Deny- Inc Petition For REHEARING On October 31, 1973, we approved a plan of New England Electric System (‘‘NEES’’), a registered holding com- pany, filed pursuant to Section 11(e) of the Public Utility Holding Company Act of 1935 (‘‘Act’’), and denied an application filed by the Association of Massachusetts Con- sumers, Inc. (“‘AMC’’) requesting a hearing on the plan and moving for consolidation of the proceeding on such plan with another NEES proceeding.’ On December 4, 1973, AMC petitioned for rehearing with respect to our order. NEES opposes this petition but takes no position on AMC’s motion for leave to file its petition out of time.” The plan proposed that NEES sell its capital stock inter- est in the Lawrence Gas Company (‘‘Lawrence’’), a sub- sidiary company, to Springfield Gas Light Company * Holding Company Act Release No. 18149 (October 31, 1973). * Rule 21(a) of our Rules of Practice permits a petition for re- hearing but a petition for rehearing is not preconditioned to ap- pellate review of a Commission order under Section 24(a) of the Act. 19a (‘‘Springfield’’), an exempt holding company under Rule 2 of the Act. The sale of Lawrence to Springfield was consummated on November 14, 1973, effective as of Oc- tober 31, 1973, in accordance with the provisions of the plan, as amended. Originally, Springfield contemplated acquiring Lawrence and merging it into either Springfield or Northhampton Gas Light Company, (renamed Bay State Gas Company (‘Bay State’’)), a wholly-owned subsidiary company of Springfield. However, on advice of tax counsel Springfield rearranged the form of acquisition so that Springfield and Bay State were merged concurrently with the acquisition of Lawrence, leaving Bay State as the surviving company and Lawrence as its sole subsidiary. The acquisition of Lawrence, whether by Springfield or Bay State, is not sub- ject to Sections 9(a) (2) and 10 of the Act. Bay State, the surviving company, is, like its predecessor, Springfield, an exempt holding company. Notice of the proposed sale of Lawrence, issued March 14, 1973, (Holding Company Act Release No. 17906) gave any interested person until April 9, 1973, to request in writing that a hearing be held. In accordance with Rule 23(e) the notice specified that any person requesting a hearing shall state the reason for such request and the issues of fact or law raised by the plan which he desires to controvert. On April 9, 1973, AMC filed a request for hearing, an application to inter- vene therein, and a motion to consolidate the Springfield proceeding with another case in which a hearing had al- ready been granted. The other proceeding with which AMC sought consolida- tion involved the proposed sale of three NEES gas utility subsidiary companies, Lynn Gas Company (‘‘Lynn’’), Mystie Valley Gas Company (‘‘Mystic Valley’’) and North Shore Gas Company (‘‘North Shore’’) and Massa- chusetts LNG, Inc., (‘‘ Mass. LNG’’), a gas storage com- pany, to Eastern Gas and Fuel Associates (‘‘Kastern’’) 20a , the parent of Boston Gas Company (‘‘Boston Gas’’). A concurrent purchase of the assets of these gas utility com- panies and of the stock of Mass. LNG by Boston Gas was to be effected so that a single gas utility company would survive. AMC and others had requested a hearing on this proposed sale to Eastern. AMC’s request for a hearing set forth in detail the issues of fact and law which it de- sired to controvert as prescribed in our notice of the pro- posed sale and in Rule 23(e). AMC cited five issues sup- ported by factual allegations on which it claimed a hear- ing would be warranted. We ordered a hearing on that sale. AMC was allowed limited participation at the hear- ing in accordance with our Rules of Practice, and its coun- sel participated from time to time in the proceeding which lasted over seven weeks. The hearing was terminated when AMC and others settled their controversy with Eastern and NEES and withdrew from the proceeding, as noted in our Memorandum Opinion and Order of Octo- ber 25, 1973, approving the sale of the NEES subsidiary companies.® Although on April 9, 1973, AMC also requested a hearing on the proposed sale of Lawrence to Springfield, it did not specify reasons warranting a hearing on that partic- ular transaction or state the particular issues of law and fact it desired to controvert. Aside from a general conten- tion that the two sales should be heard together, AMC stated only: ‘‘{ W]e request you to hold a public hearing on this matter which is subject to many of the same ob jections we raised against the proposed sale of Lynn, North Shore and Mystic Valley to Boston Gas.’” ’ Holding Company Act Release No. 18133 (October 25, 1973). * This request appears in a pricr letter of AMC to the Admin- istrative Law Judge, dated March 29, 1973, annexed to the ap- plication as Appendix B. The request for hearing on the Eastern sale referred to was annexed as Appendix A. The application of April 9, 1973, itself was directed primarily to identifying AMC and arguing for consolidation of the two proceedings. 2la On October 31, 1973, six days after authorizing the East- ern sale, we issued our Memorandum Opinion and Order which authorized the sale of Lawrence. We denied AMC’s request for a hearing because AMC had not presented any reasons to justify its request. This deficiency is more than a matter of form. A hearing is not ordered as a matter of course nor are we required to grant it merely because it has been requested.® A hear- ing is a means of ascertaining the facts necessary to reach a decision on legal issues in the proceeding. If a request for a hearing fails to specify the issues of fact or law which it is desired to controvert and the reasons why evi- dence must be taken to resolve such controversies, no issue has been drawn to define the scope of such hearing. Ac- cordingly, in accordance with our established practice, our notice in this proceeding expressly required such specifi- eation.* This procedure makes good administrative sense and at the very least serves to screen out requests for hearings on vague, unsubstantial or immaterial issues. Without it, a hearing may be futile or turned into a search for issues rather than an effective exploration of issues specifically identified and properly noticed. AMC cannot expect us to determine for it which of the ‘‘many’’ reasons it had specified in opposition to the pro- posed sale to Eastern had some relevance to the proposed sale of Lawrence and to recast them into issues to be heard in the latter proceeding. Pleading by allusion is no substitute for the direct and explicit statement that we have required as this very case demonstrates. Even con- 5 The price paid for NEES’ stock interest was $6,638,000 or 183% of the book value. The minority stockholding of Lawrence will be paid the same price. ® See Gulf States Utilities Co. v. F.P.C., 411 U.S. 762 (1973). 7 Holding Company Act Release No. 17906 (March 14, 1973). Cf. Rule 23(e) and Rule 23(c). 22a strued with the utmost liberality, AMC’s request would not justify a hearing on the Lawrence sale. It is clear that many of the AMC objections to the East- ern acquisition could in no way be applicable to the pro- posed Springfield acquisition. AMC objected to the pro- posed merger of Lynn, Mystic Valley and North Shore into Boston Gas, Eastern’s subsidiary, because of East- ern’s substantial stock interest in Algonquin Gas Trans- mission Company, Boston’s supplier of pipeline natural gas. Springfield, on the other hand, receives its pipeline gas from Tennessee Gas Transmission Company with which it has no corporate affiliation. Another AMC objection dealt with the alleged increment of market control by Boston Gas if it were allowed to merge with the three former NEES companies. Geograph- ically, the utility properties to be acquired by Boston adjoined its existing territory and shared with it gas ser- vice to metropolitan Boston. In contrast, Lawrence and Springfield serve distinct areas of Massachusetts. AMC cited statistics showing an increase in Boston Gas custom- ers, after the merger, from 338,680 on January 1, 1972, or 31.68 percent of all Massachusetts private utility gas customers, to 515,295 customers, or 48.20 percent. No sta- tistics were cited by AMC to show the respective market share or number of customers for Springfield, Bay State and Lawrence. However, the record shows that as of Jan- uary 1, 1972, Springfield had 67,849 customers, Bay State had 8,000 customers and Lawrence had 32,791 customers. Obviously, the aggregate market share for Springfield and Bay State, assuming a combination with Lawrence, is in no way comparable to that of Boston Gas. In its petition for rehearing AMC seeks to restate its objections to the Springfield sale. It is now alleged, for the first time, that, in terms of market concentration, 23a * Springfield should not be considered as a single and iso- lated utility company. Springfield is related to a group of other utilities through common executive personnel,® and it is now urged that the effect of the Lawrence sale to Springfield should be considered in this larger adminis- trative context. The statutory relevance of these new allegations is by no means clear, but there is no need to pursue this issue now. For present purposes it is sufficient to note that these allegations were not even remotely suggested by AMC’s original objections. In fairness to all concerned we do not deem it proper to reconsider the Lawrence sale, which has been consummated pursuant to our order, on the basis of a novel issue of doubtful merit or relevance that AMC has now presented to us for the first time.” We could and did read AMC’s original request for hear- ing as raising an issue as to the maintenance of competi- tive conditions in the efforts by NEES to sell these com- panies. The bidding itself, the evaluation of the bids and 8For many years, Springfield Gas Company, Fitchburg Gas and Electric Light Company, Brockton-Taunton Gas Company (Massachusetts) Concord Electric Company and Exeter and Hamp- ton Electric Company (New Hampshire) and Orange and Rock- land Utilities, Inc. (New York), an exempt holding company with subsidiaries in adjacent portions of New Jersey and Pennsylvania, have shared executive offices and certain other administrative services. ® AMC’s statement that as a result of the sale Lawrence is trans- ferred from one combination gas and electric utility holding com- pany to another is unfounded. Springfield is not part of a statu- tory holding-company system, and none of the companies with which it has any administrative relationships conduct an electric utility business in Lawrence. The sale of Lawrence effectively separates its gas business from the electric service that NEES provides in that area. 24a the preparatory discussions NEES conducted with all prospective bidders involved Lawrence as well as Lynn, Mystic Valley and North Shore. It had to because NEES had offered, as one bidding alternative, the sale of all four companies together. Pecause this issue was neces- sarily identical on both sales, we deferred action on the Lawrence sale until a full exploration of the bidding pro- cedure was completed in the Eastern hearing. If any ir- regularities were to be uncovered, AMC’s counsel had ample opportunity to uncover them in the seven weeks of hearings on the Eastern acquisition. Having found after a full hearing that the procedures adopted by NEES maintained competitive conditions in sufficient measure to satisfy Section 12(d) and Rule 44,’° we saw no need for another hearing for the purpose of again reviewing the same subject. From AMC’s original request and from its present motion for rehearing, it appears that AMC’s main objective was to consolidate for hearing the two proceedings. They dealt with the sale of different properties to different purchas- ers at different prices, and, except for the question of the »idding procedure, the governing facts were not interre- lated. We adhere to the original determination that con- solidation would have encumbered each proceeding and purchaser with questions and proof foreign to the expedi- tious disposition of the particular transaction involved. AMC also takes exception to our determination that an acquisition of the stock of a utility company with a con- current liquidation or merger of the company acquired should be considered, under the Act, as an acquisition of assets rather than as an acquisition of utility securities. It requires no argument to show that this interpretation correctly reflects the substance of the transaction being 1° Holding Company Act Release No. 18133 (October 25, 1973). 25a examined. The acquisition of the stock is simply a method of transferring title to the assets. We have not been pre- sented with any persuasive reasons to change our long standing interpretation of Section 9(a) (2).” It appears that there was an inadvertent failure to serve AMC with the Order of October 31, 1973, authorizing the Lawrence sale. The motion for leave to file the petition for rehearing out of time is granted. For the reasons set forth above, the petition for rehear- ing is denied. By the Commission. /s/ Georce A. FirzstmmMons George A. Fitzsimmons Secretary 11 Crescent Public Service Company, 22 S.E.C. 426, 432 (1946). The same rule is well established in tax law. Cf. Ashland Oil & Refining Corp. v. Commissioner, 99 F.2d 588 (C.A. 6, 1936), cert. den., 306 U.S. 661; Kanawaha Gas & Utilities Co. v. Commissioner, 214 F. 2d 685, 691 (C.A. 5, 1954). 26a APPENDIX B Pusuic Utmrry Houtpinc Company Act or 1935* Tirte I—Conrrou or Pusiic Uriuity Hoitpinc Companies Necessity for Control of Holding Companies Sec. 1. (a) Public-utility holding companies and their subsidiary companies are affected with a national public interest in that, among other things, (1) their securities are widely marketed and distributed by means of the mails and instrumentalities of interstate commerce and are sold to a large number of investors in different States; (2) their service, sales, construction, and other contracts and arrangements are often made and performed by means of the mails and instrumentalities of interstate commerce; (3) their subsidiary public-utility companies often sell and transport gas and electric energy by the use of means and instrumentalities of interstate commerce; (4) their practices in respect of and control over subsidiary com- panies often materially affect the interstate commerce in which those companies engage; (5) their activities extend- ing over many States are not susceptible of effective con- trol by any State and make difficult, if not impossible, ef- fective State regulation of public-utility companies. (b) Upon the basis of facts disclosed by the reports of the Federal Trade Commission made pursuant to S. Res. 83 (Seventieth Congress, first session), the reports of the Committee on Interstate and Foreign Commerce, House of Representatives, made pursuant to H. Res. 59 (Sev- enty-second Congress, first session) and H. J. Res. 572 (Seventy-second Congress, second session) and otherwise disclosed and ascertained, it is hereby declared that the national public interest, the interest of investors on the securities of holding companies and their subsidiary com- panies and affiliates, and the interest of consumers of elec- * Approved August 26, 1935, 49 Stat. 803, 15 U.S.C. 79a et seq. Only Title I of this Act is printed herewith. Title II containing the amendments of the Federal Water Power Act is administered by the Federal Power Commission. (Note. See p. 29.) 27a tric energy and natural and manufactured gas, are or may be adversely affected— (1) when such investors cannot obtain the information necessary to appraise the financial position or earning power of the issuers, because of the absence of uniform standard accounts; when such securities are issued with- out the approval or consent of the States having jurisdic- tion over subsidiary public-utility companies; when such securities are issued upon the basis of fictitious or un- sound asset values having no fair relation to the sums in- vested in or the earning capacity of the properties and upon the basis of paper profits from intercompany trans- actions, or in anticipation of excessive revenues from sub- sidiary public-utilty companies; when such securities are issued by a subsidiary public-utility company under cir- cumstances which subject such company to the burden of supporting an overcapitalized structure and tend to pre- vent voluntary rate reductions; (2) when subsidiary public-utility companies are sub- jected to excessive charges for services, construction work, equipment, and materials, or enter into transactions in which evils result from an absence of arm’s-length bar- gaining or from restraint of free and independent compe- tition; when service, management, construction, and other contracts involve the allocation of charges among subsid- iary public-utility companies in different States so as to present problems of regulation which cannot be dealt with effectively by the States; (3) when control of subsidiary public-utility companies affects the accounting practices and rate, dividend, and other policies of such companies so as to complicate and obstruct State regulation of such companies, or when con- trol of such companies is exerted through disproportion- ately small investment; (4) when the growth and extension of holding compan- ies bears no relation to economy of management and op- 28a eration or the integration and coordination of related op- erating properties; or (5) when in any other respect there is lack of economy of management and operation of public-utility companies or lack of efficiency and adequacy of service rendered by such companies, or lack of effective public regulation, or lack of economies in the raising of capital. (c) When abuses of the character above enumerated be- come persistent and wide-spread the holding company be- comes an agency which, unless regulated, is injurious to investors, consumers, and the general public; and it is hereby declared to be the policy of this title, in accordance with which policy all the provisions of this title shall be interpreted, to meet the problems and eliminate the evils as enumerated in this section, connected with public-util- ity holding companies which are engaged in interstate com- merce or in activities which directly affect or burden in- terstate commerce; and for the purpose of effectuating such policy to compel the simplification of public-utility holding-company systems and the elimination therefrom of properties detrimental to the proper functioning of such systems, and to provide as soon as practicable for the elimination of public-utility holding companies except as otherwise expressly provided in this title. Definitions Sec. 2. (a) When used in this title, unless the context otherwise requires— * * . * * * . 7 * + (11) ‘‘Affiliate’’ of a specified company means— (A) any person that directly or indirectly owns, con- trols, or holds with power to vote, 5 per centum or more of the outstanding voting securities of such specified company ; 29a Acquisition of Securities and Utility Assets and Other Interests Sec. 9. (a) Unless the acquisition has been approved by the Commission under section 10, it shall be unlawful— (1) for any registered holding company or any sub- si.iary company thereof, by use of the mails or any means or instrumentality of interstate commerce, or otherwise, to acquire, directly or indirectly, any securi- ties or utility assets or any other interest in any busi- ness; (2) for any person, by use of the mails or any means or instrumentality of interstate commerce, to acquire, directly or indirectly, any security of any pvublic-utility company, if such person is an affiliate, under clause (A) of paragraph (11) of subsection (a) of section 2, of such company and of any other public utility or holding company, or will by virtue of such acquisition become such an affiliate. (b) Subsection (a) shall not apply to— (1) the acquisition by a public-utility company of util- ity assets the acquisition of which has been expressly authorized by a State commission; or (2) the acquisition by a public-utility company of se- curities of a subsidiary public-utility company thereof, provided that both such public-utility companies and all other public-utility companies in the same holding- company system are organized in the same State, that the business of each such company in such system is substantially confined to such State, and that the acqui- sition of such securities has been expressly authorized by the State commission of such State. (c) Subsection (a) shall not apply to the acquisition by a registered holding company, or a subsidiary company thereof, of— 30a (i} securities of, or securities the principal or inter- est of which is guaranteed by, the United States, a State, or political subdivision of a State, or any agency, authority, or instrumentality of any one or more of the foregoing, or any corporation which is wholly owned, directly or indirectly, by any one or more of the fore- going ; (2) such other readily marketable securities, within the limitation of such amounts, as the Commission may by rules and regulations prescribe as appropriate for investment of current funds and as not detrimental to the public interest or the interest of investors or con- sumers; or (3) such commercial paper and other securities, with- in such limitations, as the Commission may by rules and regulations or order prescribe as appropriate in the ordinary course of business of a registered holding com- pany or subsidiary company thereof and as not detri- mental to the public interest or the interest of investors or consumers. Approval of Acquisition of Securities and Utility Assets and Other Interests Sec. 10. (a) A person may apply for approval of the 3la (A) the security to be acquired, the consideration to be paid therefor, and compliance with such State laws as may apply in respect of the issue, sale, or acquisition thereof, (B) the outstanding securities of the company whose security is to be acquired, the terms, position, rights, and privileges of each class and the options in respect of any such securities, (C) the names of all security holders of record (or otherwise known to the applicant) owning, holding, or controlling 1 per centum or more of any class of security of such company, the officers and directors of such com- pany, and their remuneration, security holdings in, ma- terial contracts with, and borrowings from such com- pany and the offices or directorships held, and securities owned, held, or controlled, by them in other companies, (D) the bonus, profit-sharing and voting-trust agree- ments, underwriting arrangements, trust indentures, mortgages, and similar documents, by whatever name known, of or relating to such company, (E) the material contracts, not made in the ordinary course of business, and the service, sales, and construc- tion contracts of such company, acquisition of securities or utility assets, or of any other interest in any business, by filing an application in such form as the Commission may by rules and regulations pre- scribe as necessary or appropriate in the public interest or for the protection of investors and consumers. Such application shall include— (F) the securities owned, held, or controlled, directly or indirectly, by such company, (G) balance sheets and profit and k 3s statements of such company for not more than five preceding fiscal years, certified, if required by the rules and regulations of the Commission by an independent public accountant, (1) in the case of the acquisition of securities, such information and copies of such documents as the Com- mission may by rules and regulations or order pre- scribe as necessary or appropriate in the public interest (H) any further information regarding such company and any associate company or affiliate thereof, or its re- ations with the applicant company, and or for the protection of investors or consumers in re- spect of— (I) if the applicant be not a registered holding com- pany, any of the information and documents which may 32a be required under section 5 from a registered holding company ; (2) in the case of the acquisition of utility assets, such information concerning such assets, the value thereof and consideration to be paid therefor, the owner or owners thereof and their relation to, agreements with, and interest in the securities of, the applicant or any associate company thereof as the Commission may by rules and regulations or order prescribe as necessary or appropriate in the public interest or for the protection of investors or consumers; and (3) in the case of the acquisition of any othe interest in any business, such information concerning such business and the interest to be acquired, and the consideration to be paid, as the Commission may by rules and regulations or order prescribe as necessary or appropriate in the public interest or for the protection of investors or consumers. (b) If the requirements of subsection (f) are satisfied, the Commission shall approve the acquisition unless the Commission finds that— (1) such acquisition will tend towards interlocking relations or the concentration of control of public- utility companies, of a kind or to an extent detrimental to the public interest or the interest of investors or consumers ; (2) in ease of the acquisition of securities or utility assets, the consideration, including all fees, commis- sions, and other remuneration, to whomsoever paid, to be given, directly or indirectly, in connection with such acquisition is not reasonable or does not bear a fair re- lation to the sums invested in or the earning capacity of the utility assets to be acquired or the utility assets underlying the securities to be acquired; or (3) such acquisition will unduly complicate the capi- tal structure of the holding-company system of the ap- 33a plicant or will be detrimental to the public interest or the interest of investors or consumers or the proper functioning of such holding-company system. The Commission may condition its approval of the acquisi- tion of securities of another company upon such a fair offer to purchase such of the other securities of the company whose security is to be acquired as the Commission may find necessary or appropriate in the public interest or for the protection of investors or consumers. (c) Notwithstanding the provisions of subsection (b), the Commission shall not approve— (1) an acquisition of securities or utility assets, or of any other interest, which is unlawful under the provisions of section 8 or is detrimental to the carrying out of the pro- visions of section 11; or (2) the acquisition of securities or utility assets of a pub- lic-utility or holding company unless the Commission finds that such acquisition will serve the public interest by tend- ing towards the economical and efficient development of an integrated public-utility system. This paragraph shali not apply to the acquisition of securities or utility assets of a public-utility company operating exclusively outside the United States. (d) Within such reasonable time after the filing of an application under this section as the Commission shall fix by rules and regulations or order, the Commission shall enter an order either granting or, after notice and oppor- tunity for hearing, denying approval of the acquisition unless the applicant shall withdraw its application. Amend- ments to an application may be made upon such terms and conditions as the Commission may prescribe. (e) The Commission, in any order approving the acqui- sition of securities or utility assets, may prescribe such terms and conditions in respect of such acquisition, inelud- ing the price to be paid for such securities or utility assets, ota as the Commission may find necessary or appropriate in the public interest or for the protection of investors or consumers. (f) The Commission shall not approve any acquisition as to which an application is made under this section unless it appears to the satisfaction of the Commission that such State laws as may apply in respect of such acquisition have been complied with, except where the Commission finds that compliance with such State laws would be detrimental to the carrying out of the provisions of section 11. Simplification of Holding-Company Systems Sec. 11. (a) It shall be the duty of the Commission to examine the corporate structure of every registered hold- ing company and subsidiary company thereof, the relation- ships among the companies in the holding-company system of every such company and the character of the interests thereof and the properties owned or controlled thereby to determine the extent to which the corporate structure of such holding-company system and the companies therein may be simplified, unnecessary complexities therein climi- nated, voting power fairly and equitably distributed among the holders of securities thereof, and the properties and business thereof confined to those necessary or appropri- ate to the operations of an integrated public-utility system. (b) It shall be the duty of the Commission, as soon as practicable after January 1, 1928: _(1) To require by order, after notice and opportu- nity for hearing, that each registered holding company, and each subsidiary company thereof, shall take such action us the Commission shall find necessary to limit the operations of the holding-company system of which such company is a part to a single integrated public- utility system, and to such other businesses as are reasonably incidental, or economically necessary or ap- propriate to the operations of such integrated public- utility system: Provided, however, That the Commis- 35a sion shall permit a registered holding company to continue to control one or more additional integrated public-utility systems, if, after notice and opportunity for hearing, it finds that— (A) Each of such additional systems cannot be operated as an independent system without the loss substantial economies which can be secured by the retention of control by such holding company of such system; (B) All of such additional systems are located in one State, or in adjoining States, or in a contiguous foreign country; and (C) The continued combination of such systems under the control of such holding company is not so large (considering the state of the art and the area or region affected) as to impair the advantage of localized management, efficient operation, or the effectiveness of regulation. The Commission may permit as reasonably incidental, or economically necessary or appropriate to the opera- tions of one or more integrated public-utility systems the retention of an interest in any business (other than the business of a public-utility company as such) which the Commission shall find necessary or appropriate in the public interest or for the protection of investors or consumers and not detrimental to the proper function- ing of such system or systems. (2) To require by order, after notice and opportu- nity for hearing, that each registered holding com- pany, and each subsidiary company thereof, shall take such steps as the Commission shall find necessary to ensure that the corporate structure or con- tinued existence of any company in the holding- company system does not unduly or unnecessarily com- plicate the structure, or unfairly or inequitably dis- tribute voting power among security holders, of such holding-company system. In carrying out the pro- visions of this paragraph the Commission shall require each registered holding company (and any company in the same holding-company system with such hold- 36a ing company) to take such action as the Commission shall find necessary in order that such holding com- pany shall cease to be a holding company with respect to each of its subsidiary companies which itself has a subsidiary company which is a holding company. Ex- cept for the purpose of fairly and equitably distribut- ing voting power among the security holders of such company, nothing in this paragraph shall authorize the Commission to require any change in the corporate structure or existence of any company which is not a holding company, or of any company whose principal business is that of a public-utility company. The Commission may by order revoke or modify any order previously made under this subsection, if, after notice and opportunity for hearing, it finds that the conditions upon which the order was predicated do not exist. Any order made under this subsection shall be subject to judicial re- view as provided in section 24. (c) Any order under subsection (b) shall be complied with within one year from the date of such order; but the Commission shall, upon a showing (made before or after the entry of such order) that the applicant has been or will be unable in the exercise of due diligence to comply with such order within such time, extend such time for an addi- tional period not exceeding one year if it finds such exten- sion necessary or appropriate in the public interest or for the protection of investors or consumers. (d) The Commission may apply to a court, in accordance with the provisions of subsection (f) of section 18, to en- force compliance with any order issued under subsection (b). In any such proceeding, the court as a court of equity may, to such extent as it deems necessary for purposes of enforcement of such order, take exclusive jurisdiction and possession of the company or companies and the assets thereof, wherever located; and the court shall have juris- diction, in any such proceeding, to appoint a trustee, and the court may constitute and appoint the Commission as lan ph aniia dukdiin eee eid »